Jacobs Engineering Group has entered into a definitive agreement to acquire the outstanding shares of CH2M Hill Companies, an Englewood, Colo.-based consulting and program management firm that is a leader in infrastructure, environmental, and government sectors.
Dallas-based Jacobs will finance this deal, valued at $3.27 billion (including assumption of $416 million of CH2M debt), with 60% cash and 40% stock. The firm has secured financing, including a $1.2 billion three-year term loan.
The acquisition is expected to close by the first quarter of 2018. It is subject to approval by CH2M’s shareholders that would own 15% of Jacobs’ stock upon consummation.
Jacobs is already a major player in the oil and chemicals sectors as a consultant, engineer, and project manager. Its other specialties include construction, aerospace, and defense.
In CH2M, Jacobs is acquiring a 71-year-old firm that is a leader in such areas as water infrastructure, transportation, industrial manufacturing, and environmental services.
CH2M, with more than 20,000 associates, is employee owned. It generates about $4.4 billion in annual revenue, with 73% of its business coming from consulting and program management. More than 70% of its clientele is local, state, or federal governments. Its adjusted cash flow, as of June 2017, was $323 million.
The combined company’s $15.1 billion in revenue could challenge AECOM as the world’s largest engineering firm, at a time when the Trump Administration has proposed, in general terms, an infrastructure construction and repair program in the U.S. that would include $1 trillion in public and private funding over a decade.
The combined company would be more heavily weighted toward building and infrastructure than Jacobs is currently. And the combination would surpass AECOM in global design revenue ($10 billion vs. $7.4 billion).
Buildings & Infratstructure would be a bigger part of Jacobs' portfolio if its merger with CH2M goes through. Image: Jacobs
“This is a major milestone for Jacobs and the industry,” proclaimed Steve Demetriou, Jacobs’ Chairman and CEO, during a webcast to provide analysts with details about the agreement. Demetriou was joined by Bob Pragada, President of Jacobs’ Buildings and Infrastructure & Industrial business unit; and Kevin Berryman, the firm’s EVP and CFO.
None of CH2M’s corporate officials participated in the webcast, and it’s not clear who from CH2M’s C-Suite would be staying on, or whether Jacobs intended to use CH2M’s brand for marketing purposes.
Demetriou did say, though, that one of Jacobs’ top priorities is “retaining talent,” and that the combination would create “career development opportunities” for the combined company’s employees. He also stated that it was not Jacobs’ intention to simply fold CH2M into its operations, but to take advantage of each company’s strengths to become “a premier end-to-end global solutions provider.”
Jacobs has formed an Integration Management Office, led by Gary Mandel and Lisa Glatch, EVPs with Jacobs and CH2M, respectively. The firm has also hired an outside consultant (which it did not identify during the webcast) to assist the merger. Demetriou will chair an executive steering committee set up to ensure a smooth transition and integration.
Another priority is to deliver cost and cost synergies. Jacobs executives made the point several times that there is minimal overlap in Jacobs’ and CH2M’s clientele and markets, and that both companies have pursued relatively low-risk business strategies that focus on profitability and margins. Pragada pointed specifically to Buildings, Infrastructure, Aerospace, and Technology as “higher margin” sectors that the combined company would pursue.
However, there will be streamlining if this deal goes through. Berryman said Jacobs projects this combination to produce $150 million in annual cost savings by its second full year. Berryman said “at least” 50 of the two firms’ locations worldwide present “combination opportunities.”
During the webcast, some analysts expressed skepticism about this merger, based on past AEC deals that didn't pan out as advertised, and on the fact that this deal makes Jacobs more design oriented.
Executives at Jacobs—which during its history has acquired more than 70 companies—countered that this deal has undergone extensive due diligence of all of CH2M’s projects. More to the point, they said the acquisition is a good fit for Jacobs’ broader three-year strategic growth initiative that began last year.
Demetriou assured analysts that his company has “the accountable leadership in place” to execute the CH2M deal, and to “create a new industry leader and stronger partner.”
Related Stories
| Dec 6, 2011
New office building features largest solar panel system in New Orleans
Woodward Design+Build celebrates grand opening of new green headquarters in Central City.
| Dec 5, 2011
New York and San Francisco receive World Green Building Council's Government Leadership Awards
USGBC commends two U.S. cities for their innovation in green building leadership.
| Dec 5, 2011
Summit Design+Build begins renovation of Chicago’s Esquire Theatre
The 33,000 square foot building will undergo an extensive structural remodel and core & shell build-out changing the building’s use from a movie theater to a high-end retail center.
| Dec 5, 2011
Fraser Brown MacKenna wins Green Gown Award
Working closely with staff at Queen Mary University of London, MEP Engineers Mott MacDonald, Cost Consultants Burnley Wilson Fish and main contractor Charter Construction, we developed a three-fold solution for the sustainable retrofit of the building.
| Dec 5, 2011
RJM Construction begins building Nova Classical Academy in St. Paul
As the general contractor, RJM is constructing the 94,000-sf building that will consolidate the St. Paul school’s two other locations.
| Dec 5, 2011
Gables Residential brings mixed-use building to Houston's Tanglewood area
The design integrates a detailed brick and masonry facade, acknowledging the soft pastel color palette of the surrounding Mediterranean heritage of Tanglewood.
| Dec 5, 2011
SchenkelShultz Architecture designs Dr. Phillips Charities Headquarters building in Orlando
The building incorporates sustainable architectural features, environmentally friendly building products, energy-efficient systems, and environmentally-sensitive construction practices.
| Dec 2, 2011
What are you waiting for? BD+C's 2012 40 Under 40 nominations are due Friday, Jan. 20
Nominate a colleague, peer, or even yourself. Applications available here.
| Dec 2, 2011
Legrand joins White House initiative to spur energy efficiency in commercial buildings
Company agrees to aggressive energy savings and reporting.